August 27, 2012 / 2:21 AM / 7 years ago

UPDATE 2-China industrial profit slide puts stimulus in focus

* Combined profits in July dropped 5.4 pct y/y

* Jan-July profit off 2.7 pct y/y vs Jan-June’s 2.2 pct fall

* July profits down 5.4 pct on yr vs June fall of 1.7 pct

* 25 sectors see profit growth, 15 a profit fall (Adds details and analyst’s quote)

BEIJING, Aug 27 (Reuters) - China’s industrial sector posted a sharp profit drop in July, offering a fresh sign that slackening domestic and external demand has further weighed on corporate earnings and reinforcing calls for more policy easing to underpin the slowing economy.

Combined industrial profits dropped 5.4 percent in July from a year ago, quickening from June’s 1.7 percent decline and extending a slide into a fourth month, the National Bureau of Statistics said on Monday.

Chinese firms’ profits are falling as the economy slows, although the government has been fine-tuning to try to keep growth on track.

Weak economic data in July has fanned worries that a stabilising trend of the economy may have not taken root and the slowdown may run into a seventh straight quarter in the July-September period.

“By historical standards the data is weak overall and highlights poor performance of the economy,” said Dariusz Kowalczyk, senior economist and strategist at Credit Agricole CIB in a note to clients on Monday.

He said the numbers may prompt the government to unveil measures, such as accelerating disbursement of export tax rebates and expanding export credit insurance.

Chinese Premier Wen Jiabao said over the weekend that the government would launch new measures to stabilise export growth in the third quarter.

To boost the economy, the government has fast-tracked investment spending on key projects, cut the amount of cash banks must hold as reserves by 150 basis points in three steps and lowered interest rates twice in a space of one month.

Annual economic growth expanded at the slowest pace in more than three years in the second quarter at 7.6 percent. A benchmark Reuters poll showed analysts forecast full-year growth of 8.0 percent in 2012.

PROFIT SLIDE SPEEDS UP

In the first seven months of the year, industrial profits fell 2.7 percent from a year ago to 2.7 trillion yuan ($425 billion).

July’s profits alone were down 5.4 percent from the same period a year ago to 366.8 billion yuan, the NBS said in a statement on its website, www.stats.gov.cn.

Among the 41 industries tracked by the statistics bureau, 25 sectors posted profit growth and 15 reported a profit drop in the first seven months compared with the year-earlier period. One sector - oil refining, coke and nuclear fuels - made an outright loss.

As China’s economic growth cooled to a three-year low, inventories swelled at consumer firms such as auto dealers, food makers, liquor companies and department stores, according to a Reuters analysis of balance sheets from 350 Chinese companies.

Profits of ferrous metal miners sank 60.8 percent in the first seven months from a year ago, while those of the chemical material and product industry fell 21.3 percent.

In contrast, power and heat generators and suppliers saw profit jump 29.3 percent in January-July from a year earlier, the agency added.

Automobile manufacturers and companies producing agricultural products also fared well in the first seven months, with profits rising 10.2 percent and 16.6 percent, respectively.

The NBS indicator of year-to-date profit covers industrial firms with annual revenue of more than 20 million yuan.

Other leading economic indicators have also pointed to continuing weakness. The HSBC Flash China manufacturing purchasing managers index fell to 47.8 in August, its lowest level since November, down from the 49.3 July final reading, due to falling export orders and rising inventories. ($1 = 6.3545 Chinese yuan) (Reporting by Aileen Wang and Kevin Yao; Editing by Nick Edwards and Richard Borsuk)

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